High Tech: The Rise of SaaS and the Cloud

Supply chain technology is going to the cloud—yet the forecast is anything but gray. Cloud-based multi-tenant solutions help companies achieve better execution, visibility, cost savings, and collaboration with trading partners across the supply chain.

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Remember when clouds were just white puffy shapes in the sky? Not so today. A whole new type of “cloud” has emerged that has nothing to do with the weather. Cloud computing—in which technology services and functionalities are provided via an online computer network—is taking center stage as the next big innovation in supply chain technology.

Because cloud-based supply chain technology solutions are deployed over the Web and offer access through an on-demand, pay-as-you-go model, they offer users the promise of great value and flexibility. And the variety of cloud providers, solutions, and networks available help make cloud computing an increasingly popular choice. Supply chain execution software spending will total $2.3 billion in 2013, and 18 percent of that spending will be on cloud-type solutions, according to forecasts from technology research firm Gartner Research.

But what exactly is cloud computing? How does it differ from the also-popular software-as-a-service (SaaS) model? And does the difference really make a difference to the end user? Yes, no, and maybe so seem to be the most concrete conclusions one can draw. Providers, analysts, and users hold varying opinions as to exactly what comprises cloud computing and how it compares to SaaS applications.

“Philosophically, cloud and SaaS are the same thing,” says Haluk Demirkan, professor of information systems and supply chain management for the W. P. Carey School of Business at Arizona State University. “Instead of buying and setting up software solutions internally, companies can rent them from an outside provider that hosts the applications on its own servers.”

But the cloud functions on a larger scale than SaaS, Demirkan says, because in addition to offering software as a service, a cloud network may also offer service-oriented architecture, platform, infrastructure, database, or other capabilities as a service.

Architected for Success

When it comes to the architecture behind cloud and SaaS-based solutions, the differences become apparent. SaaS solutions generally support multiple customers running on one single instance of the software (the multi-tenant model), while technically, any application that is hosted outside the four walls of an organization could be considered part of a cloud, regardless of the way it is architected. Many technologies that were originally built to function in a traditional installed-base environment are now available through a cloud, but they remain solutions that were developed for a single tenant.

“Any company can move its existing warehouse management system or enterprise resource planning solution to the cloud; that is just outsourced IT,” says Trevor Read, president of Agistix, a Redwood City, Calif.-based provider of SaaS-based logistics and transportation software solutions. “SaaS architecture, by contrast, uses the cloud to support multiple companies running on the same instance of the software.”

“Any SaaS solution is necessarily cloud-based, but there is a difference between a hosted single-tenant application and a single instance, multi-tenant product that is inherently built to support multiple users’ logistics networks,” adds Greg Aimi, research director with Gartner Research.

More Than Just a Buzzword

To some, getting mired in a debate over cloud versus SaaS misses the point. “Using the latest buzzword doesn’t add value to an IT user; it’s just a marketing message,” says Martin Hubert, president and CEO of Freightgate, a Huntington Beach, Calif.-based online, on-demand freight and logistics portal. “What an IT company labels its application may get attention, but what really counts is the value the solution generates.”

The real debate, then, may be how cloud and/or SaaS-based solutions stack up against their more traditional, single-user architecture, installed-based rivals. For many companies, the benefits of cloud and SaaS solutions have made them a no-brainer choice for managing functions such as transportation, global trade management, procurement, purchasing, and warehouse management. Here is a closer look at some benefits of the cloud and SaaS-based model:

Cost structure. Because they lack the large up-front investment required by installed solutions, and offer companies the ability to pay for only what they need or use, cloud-based SaaS solutions carry an ideal cost structure for many organizations. In addition, this model can help companies achieve a faster return on investment.

“Because of the way the SaaS model is deployed, and the speed to implementation associated with it, return on investment comes significantly quicker than upfront investment in technology,” explains Chris Timmer, CEO of LeanLogistics, a Holland, Mich.-based provider of cloud-based supply chain technologies. “Returns for SaaS solutions can come as early as four to nine months after deployment.”

Simplification. By nature, the supply chain is a complex beast, with transactions occurring across multiple parties, at multiple times—and usually occurring outside an organization’s four walls. Using technology to connect to these trading partners is a must, but those connections are not always efficient or easy to orchestrate.

Take a company such as Intel, for example. “Intel works with more than 2,000 suppliers,” says Demirkan. “Consider the complexity of connecting with these suppliers when each has its own supply chain tool.”

When a shipper begins using a cloud network, bringing its carriers, 3PLs, and suppliers online is a seamless process—and many of them may already be using the cloud network on behalf of other customers.

If they were all using the same tool—such as SAP or Oracle—it would be easy, but that is unlikely to happen because not all suppliers are large or sophisticated enough to implement a major enterprise resource planning (ERP) solution. “Instead, through a relatively simple process, those suppliers can connect in the cloud to collaborate on logistics planning, forecasting, and procurement management,” Demirkan says.

“With installed single-tenant software options—either on-premise or cloud-based—companies must develop one-off connections to all their trading partners, which can be complex and time-consuming,” adds Aimi.

In addition, cloud and SaaS-based solutions can help make trading partners’ lives a bit easier. When a shipper begins using a cloud network, bringing its carriers, 3PLs, and suppliers online is a seamless process—and many of them may already be using the cloud network on behalf of other customers.

“We don’t require carriers to do anything beyond what their shippers are already asking them to do—such as sending communications via EDI or providing Web tracking services,” says Read. “We try to lift some of the technology burden off the carriers and partners.”

Scalability. “Customer demand is so volatile today that companies have to be able to scale infrastructure quickly. Cloud computing provides that ability; traditional approaches don’t,” says Rhishi Pethe, director, product marketing, for One Network, a Dallas, Texas-based technology provider offering supply chain and business intelligence solutions via the cloud.

This scalability comes from the ease and agility of deploying SaaS and cloud solutions. Adding or subtracting users and functionalities can be done on the fly to adjust the solution for changing business needs.

“If a retailer needs more computing power during the holiday season, for instance, it can make advance consideration for that capacity in the cloud,” Demirkan explains. “The retailer doesn’t have to buy infrastructure that will scarcely be used during the rest of the year.”

Flexibility and efficiency. With scalability comes flexibility. Being able to adapt technology to suit business needs as they ebb and flow is the very definition of flexibility. In addition, many cloud platforms offer a wide variety of applications to choose from, enabling users to build their own portfolio of tools using just one network.

“Because our cloud is built on a single platform, users get an intelligent solution that can look across their entire supply chain,” notes Pethe. “In addition to a logistics solution, cloud users can choose to manage demand forecasting, order fulfillment, and replenishment using the same platform, and can see how the logistics process ties into those aspects.”

The cloud model also allows users to connect those processes more completely than an amalgam of different software products. The end result? An efficient and cohesive supply chain.

“If disparate systems can’t work well together, why bother using them? What is the point of placing an order on a certain date if you don’t have capacity to fill it?” Pethe asks. “Using a cloud solution, where information is integrated on the same platform and is easily accessible to all users, makes more sense.”

“Having control of the logistics process lifecycle in one platform makes personnel more efficient, and offers the potential to react swiftly to shifts in the supply chain,” adds Hubert.

For example, in the aftermath of the March 2011 Japanese earthquake and tsunami, companies sourcing computer chips from Japan may need to quickly shift to another region. “Owning your information and being able to access, shift, and mine it any way you want is a huge advantage,” Hubert notes.

Visibility. The primary benchmark for any supply chain technology is how well it provides visibility into logistics and transportation processes and data. In this realm, cloud and SaaS solutions are well touted. The connectivity across multiple partners that is an inherent part of the cloud and SaaS model makes visibility a natural outcome.

“Our SaaS solution offers 100-percent visibility to all shipments across all carriers, regardless of where the shipment was executed,” says Read. “Users need real-time visibility of inbound transportation and shipments in transit, with all data normalized on one platform.”

IT Takes a Community

For many companies, the unique value that cloud and SaaS-based multi-tenant solutions generate is the benefit of the network, or community, that can help them improve supply chain management in new and unusual ways. As with social networks such as Facebook and LinkedIn, multi-tenant cloud-based supply chain solutions offer ways for application users to collaborate and communicate with each other.

“The cloud enables multiple parties to leverage technologies through a common platform,” says Timmer. With the cloud, technologies that traditionally would only serve one purpose—say, optimizing transportation planning—can be used to create a transportation planning community, which allows other vendors and participants within the community to collaborate and share insights.

“This approach takes you from ‘I manage my business in my environment with my information in my world,’ to ‘I manage my business in my environment with my information in my world as a component of a greater supply chain within a community,” Timmer adds. “If you’re not in the cloud, it is more difficult to share information or business processes with other shippers and providers.”

Shipper/Carrier Collaboration

Cloud-based transportation management systems (TMS) allow shippers to work collaboratively with their carriers—and with other shippers—to leverage each other’s volumes and assets to make their supply chain more efficient and drive down costs.

Timmer cites the example of private fleets: Companies running private fleets have made an investment in their assets, so they need to utilize them to the fullest extent, which is not always easy to do. Through LeanLogistics’ cloud community, private fleet operators can easily find backhaul opportunities without using a broker to fill their trucks.

For smaller shippers, being able to participate in LeanLogistics’ cloud—which currently accounts for some $6 billion in annual transportation spend—provides access to carriers, information, best practices, and collaborative opportunities not available in non-cloud environments.

The Data Access Advantage

Cloud-based, multi-tenant supply chain networks also boast a secondary information aspect, in addition to their execution capabilities. Gaining access to data through supply chain clouds is a distinct advantage of being part of a network.

“Because these networks are communities utilized by a wide range of shippers, carriers, and suppliers, their transactions generate valuable data,” Aimi says. “That aspect is missing from a traditional one-off implementation.”

A consumer packaged goods (CPG) manufacturer that ships to Walmart and manages its transportation in a multi-tenant cloud-based solution, for example, could use the cloud’s data to look at the performance of arrival to departure times at a given Walmart distribution center.

“The CPG company could see the metric of actual versus estimated arrival times in a particular lane over the past month and compare that data to its on-time delivery plan,” Aimi explains.

For example, LeanLogistics’ LeanDex Transportation Index makes transportation data that resides in its cloud available to individual users to help them gain greater intelligence about the marketplace. The self-serve application lets users compare rates and service performance indicators across the transportation market.

“We aggregate data from the billions of dollars in transportation spend that flows through our cloud, then provide a benchmark that companies can use within their daily operations to evaluate their business both tactically and strategically,” Timmer explains.

The Cloud in Action

So who do these cloud-based solutions make sense for? While small and mid-size companies may seem to have the most to gain, companies of all sizes receive benefits from cloud and SaaS-based supply chain solutions. Companies that struggle to manage transportation and logistics operations with spreadsheets, as well as enterprises experienced in sophisticated software systems, are turning to the cloud.

“Our user base includes companies that have never used a TMS and those that utilize TMS very well,” says Timmer. “Those who have used TMS as an installed solution are eager to reap the benefits of the cloud. And companies that have never used TMS are drawn by the ease of use and implementation, as well as the new ability to optimize transportation.”

A SaaS solution’s appeal may not depend on the company’s size, but rather on the sophistication of its needs and the benefits it seeks, says Read, who identifies three main categories of SaaS TMS users. First are companies that need basic functionality and want to use a cloud network to find and access the least-expensive shipping rates.

“These companies merely want to send their freight out to bid to find excess carrier capacity and minimize cost per single shipment,” Read says. “We recently began working with a $3-billion company in this mode—it was up and running in less than one week, with 10 carriers and 15 users in two different locations.”

Second are companies seeking a SaaS-based TMS solution with additional functionality such as rating, load tendering, and routing guide enforcement.

“They know it’s not just about bidding, and they appreciate how important it is to execute and manage transportation holistically,” Read explains. These shippers are looking for the lowest total transportation costs across multiple shipments, based on factors such as carrier contracts, routing guides, and carrier expertise.

Finally, some companies have single or multiple TMS solutions in place, and may also have multiple ERP and WMS solutions—but still are not capturing the visibility they need.

“These companies maintain a lot of infrastructure, and many of these enterprise systems cannot communicate with each other without a tremendous amount of customization,” Read says. “Our objective is to handle the data normalization and integration across all shipper and trading partner systems to provide holistic visibility from purchase order to invoice.”

By incorporating a multi-tenant cloud network, these shippers are able to integrate the data from all their transportation and logistics systems and create a complete visibility tool. They are looking for a robust system to automate workload, centralize communication, facilitate compliance, help reduce total freight spend, and provide scalability and flexibility without overburdening IT resources.

Read cites the example of a $20-billion company that recently began using Agistix. Within three weeks of implementation, the company had visibility to data on 98,000 shipments. Agistix then used its visualization and dynamic filtering tools to determine information such as where its routing guides were being ignored and where costs were higher than they should have been. The added benefit of aggregate tracking data allows this user to drill down to specific locations, and suppliers to gain better control of its supply chains.

“We can provide this type of shipper with TMS execution capabilities plus 100-percent visibility to its cost accruals, as well as accurate forecasting and the tools to make proactive changes to its supply chain,” Read explains.

From basic to advanced, big to small, and everywhere in between, it seems there is something in the cloud for everyone.

DoD Marches to the Cloud

Outfitting war fighters is serious business for the U.S. Department of Defense (DoD). That the DoD selected a logistics partner with a cloud-based transportation management solution (TMS) to ship goods to soldiers in the field signals the strength of these new software delivery platforms.

About three years ago, the DoD selected San Mateo, Calif.-based logistics provider Menlo Worldwide Logistics as program manager for its Defense Transportation Coordination Initiative (DTCI). Menlo chose as its software partner One Network, a Dallas, Texas-based technology provider offering supply chain and business intelligence solutions via the cloud, to supply the software applications that would help manage large portions of the DoD’s North American transportation spend under DTCI. Menlo and its team work with the DoD to manage the process of transporting large LTL, truckload, and heavy airfreight volumes from some 100 government shippers to nearly 5,000 destinations.

When Menlo began examining TMS options for its DTCI proposal about five years ago, the organization had a cloud-based solution in mind.

“DoD wanted a Web-based solution to support its shippers and destinations,” says J. Mark Gutman, senior manager of implementation and IT for Menlo’s DTCI program. “It has a strong small business component, so it wanted small carriers who might not have robust technology capabilities to be able to participate, which made a Web-based cloud solution ideal.”

One Network already had several thousand carriers using its network, and many of the DoD’s carriers were included—a real bonus. The cloud solution supports the needs of five different service branches: Army, Navy, Air Force, Marines, and the Defense Logistics Agency. The branches use three different internal shipper systems to electronically send order requests—or “freight offers” in military lingo—to Menlo, which uses One Network’s solution to optimize the entire freight pool and find the most efficient, low-cost way to ship that freight by the mandatory delivery date.

DTCI’s approved carriers, lanes, and rates are stored on One Network’s cloud, and Menlo’s transportation planners determine which carrier to award the freight to.

“We electronically notify the DoD’s shipper system which carrier will pick up the freight, then DoD uses its system to print the bill of lading,” Gutman explains. “We receive electronic notification when the shipment leaves, and start tracking it to delivery.”

“We also use the tool to support freight-bill payment for the DTCI program and report back on key performance indicators,” Gutman adds. “If a shipment is lost or damaged, DoD files a freight claim through One Network, then Menlo manages that claim with the carrier.”

Though this partnership was Menlo’s first experience with a SaaS-based cloud solution, the provider saw parallels between the system’s easy-to-upgrade-and-maintain nature and its own culture of continuous improvement.

“One Network is always upgrading the system and bringing new capabilities to the DoD, which helps us continue to provide value,” Gutman notes.

Since switching to the One Network solution, the DoD improved its on-time delivery rate, which now exceeds its mandated 97-percent metric. Menlo and One Network have also helped the agency reduce costs, while providing it with the coveted “single version of the truth.”

“Because of the cloud-based nature of the system, everyone is looking at the same data at the same time,” Gutman notes. “The shipper, the carrier, the Menlo load planner, and DoD managers—we can all see the same information, and know exactly what is going on.”